I thought that hotels were suffering drops below 50% and 60% occupancy in many high touristy areas? What's up with building these highfalutin hotels all over the place?
Well, believe it or not, there are some locations on the globe that aren't suffering such a setback. Places such as Egypt, Dubai, and Panama are really looking at a bright future still. Tourism even increased in Egypt by 15.5 percent from 2007 to 2008. This is where MGM Mirage is teaming with Egypt's New Giza for Real Estate Development to build a brand new MGM Grand New Giza, just outside of Cairo, Egypt. Imagine waking up looking out at those amazing pyramids. Multiple companies around the globe are looking to follow suit.
Hilton, LaQuinta, and AMResorts have all seen this and are trying their hand at expanding globally. Aren't these companies worried about going bankrupt? Well, first off, tourism is still expected to increase in the long run, especially in these places I've just mentioned. Secondly, because of the economy, many companies see this as a perfect opportunity to expand. "In the current economic environment, this is the perfect way for our company to continue its expansion, because there's no capital outlay," says Gordon Absher, the VP of public affairs for MGM Mirage. All of these companies are skipping the development phase of hotels and subsequently saving on massive capital outlays. Instead, partnerships are emerging where one company finances development and the other will serve simply as an operator.
With much of the hospitality and travel industry struggling with debt and falling earnings, it's a smart move to expand into areas with promise. This is the perfect time to grow in an industry you know will be there in the future. People will never stop traveling. Many markets have already reached critical mass for the hospitality business, which is quite possibly the reason we have seen such a decrease in occupancy at hotels. There is no opportunity cost lost building internationally because of the struggles in most markets and oversupply. The downturn may eliminate older properties, so there will be less supply in the overcrowded markets. So as that problem is taken care of, why not expand?
If you have an opinon about whether or not this is the right time to expand, please check out our July poll question!